Taxes to soar 200% for wealthy Colombians in invoice impressed by Thomas Piketty

When Colombia’s new leftist president, Gustavo Petro, unveiled a plan to impose a wealth tax on the wealthy simply hours after being sworn in, the alarm bells rang solely so loudly within the modern neighborhoods of Bogota and Medellin.

This type of tax is nothing new right here. The nation has had one, on and off, for many years. And apart from, at first blush, this one regarded an terrible lot just like the outdated ones: a 0.5% tax fee on belongings above about $600,000 that might climb to a 1% fee on belongings over $1.1 million.

However a more in-depth evaluate reveals a essential distinction that makes this tax markedly stronger, a lot in order that it might — at the side of one other Petro proposal within the works — drive up taxes on the wealthiest by about 200%. The invoice would power the wealthy to declare their belongings at present worth, in contrast to the outdated regulation, which allowed them to report belongings at their authentic buy value.

Gustavo Petro, Colombia’s president, speaks throughout an inauguration ceremony at Plaza Bolivar in Bogota, Colombia.

Nathalia Angarita/Bloomberg

If accredited by congress as such, it’d mark a significant early legislative victory for Petro, the type of trophy that’d present he is critical about narrowing the hole between wealthy and poor in one among Latin America’s most unequal societies. Petro has boasted about how Thomas Piketty, the French economist famend for pushing wealth taxes as a method to cut back inequality, is an adviser. Approval of the invoice, although, would additionally virtually definitely spark a rush among the many wealthy to whisk cash overseas in a bid to cover it from the authorities.

“Persons are going to maneuver extraordinarily rapidly,” mentioned Juan Ricardo Ortega, a former head of Colombia’s tax company. “They’re solely going to catch the Colombians like me, who do not find the money for to go wherever.”

The invoice requires the tax to be levied on belongings — reminiscent of shares, bonds and actual property — held on the final day of the yr. Ortega mentioned that neighboring Panama, a rustic lengthy utilized by world elites as a tax haven, is a possible vacation spot for a lot of the wealth. 

Largest fortune

Each Ortega and Lucas Solano, a wealth administration planner who focuses on tax laws at Credicorp Capital, landed on the approximate 200% enhance estimate. 

The tax invoice might, after all, get watered down — or spiked fully — in congress. However Petro, a 62-year-old former guerrilla, solid a ruling coalition by constructing alliances with necessary teams of lawmakers, together with the highly effective Liberal Get together, that can make it simpler for him to cross laws. 

The cash raised from the tax invoice — equal to 1.7 share factors of gross home product in all — would assist his administration fund pledges to spice up welfare spending whereas additionally reducing the price range deficit, a key to calming the nation’s jittery bond traders.

10,000 folks

The outdated wealth tax first got here into impact across the flip of the century. The issue with it, Ortega says, was that permitting folks to worth their belongings on the buy value vastly underestimated their wealth and, consequently, the taxes they paid.

For 2017, as an example, the most important fortune declared to the Colombian tax company was about $1.5 billion, in keeping with analysis by economists Luis Jorge Garay and Jorge Enrique Espitia. 

That individual’s title wasn’t revealed however there are Colombians who’ve a lot larger fortunes than that. Comparable to Luis Carlos Sarmiento Angulo, the nation’s wealthiest individual. His belongings have been value $12.5 billion on the finish of that yr, in keeping with the Bloomberg Billionaires Index. 

Some 10,000 Colombians can be topic to the brand new tax, in keeping with Espitia, who works on the nationwide comptroller’s workplace. That is equal to about 0.02% of the inhabitants.

Petro’s invoice additionally requires a rise in taxes payable on dividends, successfully quadrupling the speed for these within the prime revenue bracket to 39%, in addition to a windfall tax on oil and mining corporations and levies on sugary drinks and processed meals. Finance Minister Jose Antonio Ocampo mentioned final week that the federal government could also be ready to debate adjustments to the dividend proposal.  

In an indication of the alarm the laws has precipitated amongst wealth managers, monetary conglomerate Grupo de Inversiones Suramericana SA warned final week that the tax will increase would speed up the decade-long decline within the nation’s inventory market. 

“There is a important threat,” Ricardo Jaramillo, vice chairman of enterprise improvement and finance at Sura, mentioned in an interview, “that the fairness market will virtually disappear.”